Manjar Discretionary Family Trust Vs ITO (ITAT Rajkot)
Assessee is a Private Discretionary Family Trust, which filed return on 12.07.2024 declaring total income of ₹4,20,380/- & claimed refund of ₹51,750. CPC processed the return u/s 143(1) & reduced the refund to ₹1,252 by charging surcharge @ 37% (₹46,662) & higher health & education cess (₹6,911 instead of ₹5,045). Assessee appealed before CIT(A), arguing that its income was below ₹50 lakh, therefore surcharge is NOT applicable. However, CIT(A) rejected the appeal, relying on ITAT Mumbai decision in Ardhya Jain Trust, & held surcharge at 37% is applicable simply because the trust is taxable at Maximum Marginal Rate (MMR) u/s 164.
Before ITAT, Assessee argued that MMR means the rate applicable to the highest slab of income under Finance Act, but surcharge is applicable only when income crosses ₹50 lakh, as per Part I, Paragraph A of First Schedule. Since total income is only ₹4.20 lakh, no surcharge can be levied. Assessee also submitted that the judgment relied upon by CIT(A) (Ardhya Jain Trust) was not applicable to present facts.
ITAT examined the issue in light of the latest binding decision of Coordinate Bench, ITAT Mumbai in Araadhya Jain Trust vs. ITO (ITA 4272/Mum/2024, order dated 09.04.2025). It was held therein that:
- Private Discretionary Trusts are taxed at MMR u/s 164/167B,
- MMR means the rate of income tax applicable to the highest slab,
- Surcharge is NOT automatically 37%,
- Surcharge must be computed as per slab-based surcharge structure in Finance Act,
- If total income ≤ ₹50 lakh, surcharge = NIL,
- Levying 37% surcharge irrespective of income leads to absurdity & injustice, & ignores threshold limits provided in law.
ITAT applied this ratio & held that CPC & CIT(A) erred in charging 37% surcharge on income of only ₹4.20 lakh. Therefore, surcharge is NIL, & related increase in cess & reduction in refund is also incorrect. ITAT set aside CIT(A)’s order & allowed full refund & interest u/s 244A.
